China’s Q3 GDP robust, but medium-term deceleration unavoidable: Natixis

HONG KONG - While the good performance of the first two quarters in 2017 (growth of 6.9%) should carry further to Q3 given strong fiscal and monetary tailwinds, there have already been some signs of deceleration IN China’s economy, especially for exports, investment and the slowdown in real estate prices, says global asset manager Natixis in a research report.

Natixis is forecasting a Q3 GDP growth rate for China of 6.8%.

“Consumption spending will continue to be a sustainable factor driving China’s economic growth,” it says. “In the same vein, high frequency data has already revealed signs of positive growth as the official PMI has reached the highest level since May 2012, and PPI has stayed in the above-5 territory, thanks to soaring industrial profits and improved performance of SOEs.”

Natixis says the Chinese Government’s fiscal room for the rest of the year is limited, but monetary policy could be more relaxed, maintaining a comfortable policy environment for economic growth.

“However, some key economic difficulties are still looming. Behind the strong economic numbers are worrisome problems like still mounting debt, low return on assets and continued pressure of capital outflows.

“The divergence  of the Caixin PMI from the official one, and climbing commodity prices shed some light on the struggle of industries, especially those facing Government-mandated shut-down because of high pollution emissions.

“As such, we expect the Chinese economy to continue to stand on a moderate but noticeable slowdown trajectory.

“Despite the new leadership’s decision to implement more measures to counter the slowdown, the weakening fundamentals will be likely to drive the economy to a lower growth rate of 6.5% in 2018.”  www.natixisresearch.com (ATI).